How Much Should I Spend on Marketing?

This is a really interesting question! 

So, what is your goal?  Is your goal to grow and make more money?  Or is your goal to shrink and go out of business?  Or something else?

If your goal is true financial independence with free time to enjoy it, word of mouth is rarely enough by itself.  You need to grow fast enough to build a substantial base of Raving Fans first.  (Emphasis on “Raving”.  Not just “satisfied customers”.)  If you are trying to grow, word of mouth from past customers is rarely enough exposure to grow more than a minimal rate, and past customers often forget you if you don’t stay in touch. 

Some statistics on the internet indicate the average business spends around 4% of Revenue on Marketing.  But then, the average business goes out of business.  Other statistics indicate 96% of businesses never grow enough to reach $1Mill of Revenue.  That may be okay for a 3 to 5 person business, but limits the owner’s options when they want to retire.  And it limits their total income along the way.  Especially if they want free time from their business to enjoy it.  If they aren’t working - they aren’t making money.  So, if your goal is to make a lot of money, 4% is probably not a good enough number.  Unless you just love to have to be at work every day!

Benchmarks for growing a business seem to range in the 10% to 15% range.  Some have said up to 20% in the early stages of a business.  Prospects can’t buy from you if they do not know you are there.  And few will buy from you if they don’t see what makes you different and better than their other choices.

It also helps a lot if you have multiple offerings that support repeat business.  Depending on your industry, you may need to design your business differently to bring new opportunities for customers to buy.  But without diluting your brand into different markets.  And then you need to invite past customers back to buy those additional things.

It also helps a lot if you learn how to measure the effectiveness of your marketing so that you can tune it to perform better, including to find out which are the most profit-effective channels.  Yes – “profit-effective”.  Many people look at Marketing as an Expense.  And yes, that is where it sits on the P&L statement.  But if you think of it as an investment (that takes months to generate ROI), then you can treat it as an asset that produces ROI – and invest in or divest out to achieve a particular result.  That takes practice – but you have to start, and measure and test, in order to receive the benefits.  In short – know your numbers!

The caveat to all of this is that you learn how to communicate with and educate your target market about factors that are important to them, and how to buy, in media channels they use.  That starts with learning how prospects perceive the problems that you can help them solve.  If you only focus on your product and features, very few will trust that you can solve their problem.  If you focus on solving their problem, they are far more likely to trust you. 

Last thought to consider, many think that the secret to making more money is to cut expenses.  Cost efficiency is important.  But.  The true secret to making more money is selling more and gaining more repeat business – at appropriate profit levels.  (Note; the lowest price is not the secret to success either.)  In order to sell more – you will need to do more Marketing - effectively.    

Happy Selling! 

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